In a recent ruling, a federal judge has temporarily blocked Arizona's attempt to bring criminal charges against Kalshi, a prediction market provider. This decision comes in response to a motion filed by the Commodity Futures Trading Commission.
District Judge Michael Liburdi of the District of Arizona ruled that Arizona cannot proceed with an arraignment of Kalshi as scheduled, after the state announced plans to file 20 criminal charges against the company for allegedly offering betting products in violation of state law. The judge's ruling stated that the Commodity Futures Trading Commission has made a strong case that Arizona's gambling laws are preempted by the Commodity Exchange Act. Allowing Arizona to proceed with state action could violate the Supremacy Clause, leading the judge to grant a temporary restraining order for two weeks.
The order also noted a pending motion for a preliminary injunction, which could extend the temporary restraining order if granted. The ruling temporarily restrains Arizona from enforcing its gambling laws in any criminal or civil enforcement actions related to contracts listed on Commodity Futures Trading Commission-regulated markets. In a statement, Commodity Futures Trading Commission Chair Michael Selig expressed appreciation for the judge's decision, stating that Arizona's use of state criminal law against companies complying with federal law sets a dangerous precedent.
The Commodity Futures Trading Commission has argued that prediction markets are swaps subject to federal supervision, preempting state law. This view has seen mixed results in court, with state courts often siding with states and federal courts producing different outcomes.
The Third Circuit Court of Appeals recently ruled that prediction markets are subject to Commodity Futures Trading Commission rule, while the Ninth Circuit Court of Appeals declined to intervene in a Nevada state court's decision to block Kalshi. Judge Liburdi's ruling comes two days after denying Kalshi's motion for a preliminary injunction against Arizona, with the parties arguing on different grounds.